Budget 09 – What Would the Tories Do?

While everyone focuses on the Governments plans as set out in Budget 09, let’s pause for a moment and consider the Tories options.

Budget 09 projects public sector borrowing to rise to £175bn a year in 2009-10, and be at £173bn, £140bn, £118bn and £97bn in the four subsequent years. Total net debt by 2013-14 would be a staggering £1.4 trillion or 76% of GDP, up from 43% last financial year (2008/09).

Remember Gordon Brown’s rule was that it should not go above 40% of GDP.

The Conservatives are claiming they will be ‘fiscally prudent’ and prevent these horrendous rises by taking ‘tough decisions’. But they are also ruling out tax rises. So the whole burden of stopping this rise would have to fall on spending cuts.

If they were to halt the rise in national debt if they come to power next year – when it will already be at 56% of GDP – they would have to somehow cut enough to offset the projected £173bn borrowing for that year out of spending budget of £702bn as currently planned by Labour. That is a 25% cut. This is self-evidently ridiculous.

So how much would they cut, and how much would they allow the national debt to continue to rise? Yesterday former Tory leader Iain Duncan Smith was, I think, talking about cutting £50-£60bn a year from public spending – i.e. getting on for 10%. But even this – which would be politically almost impossible to achieve – would not halt the rise in the national debt.

And remember that all this is based on government projections about growth in the economy from next year that the Tories say are unrealistic. If they do prove overly optimistic, the debt problem will be even worse.

All this should set against the Tories rhetoric about fiscal conservatism and how they would take the tough decisions. I think not, or at least not on this scale. Taking a tougher stance on public spending may well be a defensible policy choice or even desirable (although I would not personally recommend it) – but saying you can even start to rebalance the books and halt the rise in public debt without tax rises too is nowhere near credible. Saying you can actually halt the rise in the medium term just by cutting public spending would be pure fantasy.